Assuming a downward-sloping demand curve,a decrease in production costs for firms in a perfectly competitive market initially in long-run equilibrium will cause a(n):

Question

Quizplus · Accepted Answer

A decrease in production costs will shift the supply curve to the right, causing a temporary increase in quantity supplied and a decrease in price in the short run. Firms will experience economic profits as long as price exceeds average total cost. In the long run, however, new firms will enter the market, increasing supply and driving down price until economic profit is eliminated. Therefore, there will be no permanent increase in price, increase in demand, or increase in firms' marginal revenue.

Assuming a Downward-Sloping Demand Curve,a Decrease in Production Costs for Firms